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Standard of Living: Meaning and Determinants

Updated on June 1, 2014


The term “standard of living” refers in general to the necessaries, comforts and luxuries that go into the consumption of a particular class of people. For example, every man wants better food, better clothing, better housing and better education for his children. In other words, he wants to enjoy more of necessities, comforts and pleasures of life. The term, which covers all those things, is standard of living. All men aim at a higher standard of living.

It is rather difficult to define exactly the phrase “standard of living”. It is also difficult to measure it. Standard of living has been defined as “the common habits of its members with reference to spending and working” (Chapman).

Standard of living of a class depends upon many things such as income, education, customs and habits, religious influences and so on. Standard of living differs from country to country. Western nations in general enjoy a higher standard of living than countries like India, china and Egypt. For, in the case of the former, their incomes are high. It should however be noted that standard of living of the people of a country depends not on their money income but on their real income. Real income refers to the actual goods and services that can be bought with money income. Not only that, the customs and habits and religious attitudes of people are also different.

Suppose a religion preaches simple living and ascetic life, those people who belong to that religion may not go in for comforts and other good things of life. The expenditure of a family will give us an idea of its standard of living. For that, we should study the family budgets. The family budget is a statement showing the income and expenditure of a family. By looking at the pattern of expenditure of a family, we can find out its standard of living.

There are many causes for the low standard of living in a country. First, the national income of the country may be low. Naturally, the per capita income (National Income/Population) is also low. The second reason is the low productivity of agriculture. For, agricultural workers get low wages. Not only that, they do not get work throughout the year. For nearly five or six months in a year, they are unemployed. Lastly, the large increase in population is another thing that affects standard of living very badly.

The above discussion takes us to the relationship between standard of living and wages, population and capital formation.

Standard of Living and Wages

Standard of living and wages are interrelated. For, standard of living depends upon income and for a majority of people, the source of income is wages. In fact, there is a theory of wages, which tells that the wages of a particular class of people depend on their standard of living. Of course, we should remember that standard of living depends upon real wages and not on money wages. Real wages refer to the actual command of a person over goods and services. It is also true to say that standard of living in turn determines wages. If the standard of living of a worker is high, his wages will also be high. For his productivity will be high. A worker in a developed country is more efficient than a worker in a poor country because his standard of living is high. He takes good food and enjoys all good things of life. He is healthy. So he is able to work hard. In other words, his efficiency is high and he earns high wages.

Standard of Living and Population

The standard of living of people in a country depends also upon the size of population in the country. Most of the European nations like Switzerland, Belgium, Holland and Germany enjoy a high standard of living because they have small population. But standard of living in countries like India and China is low because of the large size of their population. In fact, there is over-population in these countries.

Standard of Living and Capital Formation

Capital formation is necessary for economic growth. The standard of living in a country also affects the capital formation in a country. Capital comes mainly from savings and savings depend upon income. If the incomes of people are low, they have to spend a large portion of their incomes on necessities like food, clothing and shelter. In other words, they have a very low standard of living. They cannot save much. But in western nations, capital formation is at a high level because the wages of those people are high: their incomes are high and so they enjoy a high standard of living and at the same time can save money which helps in capital formation. High standard of living also stimulates production, which in turn promotes capital formation.

© 2013 Sundaram Ponnusamy


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